India: The next Detroit?

BANGALORE, India — Detroit may be sputtering in the face of the global economic meltdown. But in booming India, the world’s biggest automakers are in a race to build and launch a slew of small cars.

Late last month, Ford Motor, the lone major U.S. carmaker to fend off bankruptcy, announced it will make and sell its first small car in India — the Figo, or Italian for "cool." Unveiling the Figo in New Delhi, Ford’s CEO Alan Mulally said the company’s Chennai factory would produce the Figo next year for both domestic and export markets.

But it’s not just Detroit that’s moving into the subcontinent.

Toyota, Volkswagen, Suzuki, Hyundai and Nissan have announced combined investments of more than $6 billion to build plants across India.

In the southern Indian city of Chennai, Nissan will roll out its compact car for the global market by May 2010. “Of the total investment of 350 billion yen ($4 billion) by Nissan globally in 2009, India gets a major chunk of the investment,” a Nissan spokesman told GlobalPost.

The global crisis has presented a huge opportunity for India to become the world’s dominant player in producing small, fuel-efficient hatchbacks. Cheap labor is abundant, while India’s growing domestic market is a huge incentive. Today, three of four cars sold in India are small cars. Bucking the trend in the United States, car sales in India rose 13 percent in the April-August period compared with the previous year. By 2015, annual sales are projected to hit 3 million, as India’s rising middle class looks for more ways to hit the road.

“Detroit is a benchmark only to be surpassed, the United States is no longer the last frontier in car technology and production,” said V.G. Ramakrishnan, of Chennai-based automotive consultancy Frost & Sullivan. “Detroit is going to feel the pressure,” he adds.

Unlike the green-mindedness of buyers in Europe and elsewhere, the size and price of cars produced in India will be driven by the limited wallet power of thousands aspiring to own their first cars.

Dr. Saraswathi Kanth, 40, of Bangarpet town outside Bangalore is a classic example of an Indian car buyer. Dr. Kanth runs a gynecology practice and could have afforded luxury.

But she chose to be swayed by price and chose the Nano, India’s homegrown small car produced by Mumbai’s Tata Motors. The Nano, a $2,500 air conditioned, gasoline-powered cheap wonder, hit Indian roads in March.

Dr. Kanth now bumps along the rutted roads of her town in her sporty Nano. She says she is thrilled with the design and fuel efficiency of her new acquisition.

Ford is only the latest in a long lineup of carmakers scrambling to build, sell and export small cars out of India. And it’s not only small, combustine engine models that are drawing attention.

Last week, General Motors’ Indian subsidiary announced that it had tied up with Bangalore’s Reva Electric Car Company to jointly develop and produce electric vehicles for the Indian market.